Category Archives: Verticals

Post navigation

Yelp is acquiring Eat24, the online delivery and pickup service that competes with GrubHub, Delivery.com and other national and regional players for order-taking, food search and discovery. The service is being acquired for the equivalent of $134 million ($75 million in cash and 1.4 million Class A shares).

Eat24 currently provides menus, order=taking and tracking services for more than 20,000 restaurants in 1,500 cities – 10,000 fewer than GrubHub. Like GrubHub, its revenue model is based on commissions (industry standards are typically 10-12 percent per order.) The service is free to the consumer, although restaurants can charge their own delivery fees.

The service is largely dependent on customer pick up at restaurant locations, but delivery is becoming a larger factor. In several California cities, for instance, Eat24 will soon be providing delivery via SideCar, the shared-car service.

Founded in 2008, Eat24 has been integrated with Yelp’s mobile app since 2013. By bringing Eat24 in-house, Yelp can strengthen its platform of services, which have grown beyond advertising and now includes scheduling, reservations/booking and offers. Yelp reports that it has over 93,000 active local accounts.

While Eat24 currently lags behind GrubHub, online delivery is still a nascent category. Moreover, it is ripe for cross-over activity with other food-related segments, including rating/reviews (i.e Yelp and Zomato, which just acquired IAC’s UrbanSpoon); online reservations (i.e. Priceline’ s OpenTable); and eventually even grocery delivery (i.e. Amazon, WalMart and Google.)

After months of rumors, Amazon has entered the increasingly crowded service pro referral space with a beta test in nine markets. According to a dedicated web site for the launch, service pros will pay Amazon 20 percent for services that cost $1000 or less, and 15 percent above that amount, as well as monthly subscription fees – although those fees are waived through June 2015. The 20 percent fees are comprised of 15 percent service platform fees, and 5 percent transaction fees.

The service is launching with a strong focus on consumer electronic installation and repair, fitting with sales on the Amazon site. Auto and bike services are also featured, with more categories likely to be added. All pros must undergo background checks, which will cost $50 (plus $40 per employee); have appropriate licenses, and carry insurance. All listings will also feature Yelp reviews as well.

Amazon will be competing against a number of other players in the space, including market leaders such as Angie’s List and Home Advisor; Pro.com, a new site launched by former Amazon exec Matt Williams; Serviz, a new site launched by former ReachLocal exec Zorik Gordon; and The Home Depot’s Red Beacon service.

Almost two years ago, IAC was in a tough situation. It had a leading services referral business in ServiceMagic, whose main rival was Angie’s List, the paid subscription service. But the service wasn’t growing; had relatively low brand awareness; and seemed to be in danger of getting bypassed by a new crop of social media driven services.

In an episode of creative destruction, IAC, along with new CEO Chris Terrill, made the decision to rename the company to “Home Advisor”; and narrow its focus to home services. Terrill later refocused the company’s primary business model from pay per lead to monthly subscriptions that would include a variety of value added social media and directory services (pay per lead options remain available).

Today, the Home Advisor brand may not be as well known as ServiceMagic at its peak. It also remains under the radar in the business world. That is partly explained by the company not being VC backed or publicly traded as a separate company outside of IAC, says Terrill. “We don’t get written about as much.”

But Terrill says that the company remains one of the largest home service networks, with 80,000 service pros, two million reviews and 30 million home owner requests. It is also growing and profitable, and highly focused on “strategic sales.”

And it is focusing more on the awareness issue, conducting an ambitious TV campaign to reach more home owners. It will be spending even more on TV in coming months, with budgets that are in the “tens of millions” of dollars.

The picture looks bright going forward for Home Advisor and the entire home services space, says Terrill. Over the next couple of years, Terrill says Home Advisor will have a singular focus on growing its U.S. business.

“A lot of small entrants are coming into the space,” such as Pro.com, the service launched by former Amazon leaders (not to mention Amazon’s own entrance into the space.) “We see the local home space heating up,” he says. But Home Advisor remains a leader in the space – competing against players such as Angie’s List, Yelp and Home Depot’s Red Beacon — and continues to add building blocks, Terrill says.

Today, for instance, the company announced the purchase of Mhelpdesk, a 30-person Fairfax, VA-based company that helps service pros manage their businesses, and allows home owners to directly book services – especially over mobile phones. The service has over 10,000 service pros.

Terrill says that Mhelpdesk is a leader in a “rapidly growing space” that will prove increasingly important to the company. “It could not have worked 2,3,4 years ago,” he says, before the popularization of cloud-based mobile devices for SMB service providers. “It’s an important piece of the puzzle.”

Loyalty programs offering cash back or other rewards make a lot of sense for merchants – until it is 7:30 pm on Friday, and the loyalty program is still giving 20 percent back even though it is prime time for the restaurant. Mogl, the San Diego-based loyalty firm now working with over 1,000 restaurants in Southern California, San Francisco and Phoenix, thinks it has solved the problem.

Since June, the company — which has raised $25 million and set to initiate a new round — has been rolling out a new version that lets restaurants choose the amount of cash-back based on time of day. A 20 percent promotion at lunch can shrink to 1 percent for dinner, and go back to 10 percent for brunch – based on when the restaurant has seats to fill. Mogl calls this putting “butts in seats”.

How does it work? Restaurants log on to their dashboard on the Mogl website to program their cash-back offer by day and time. Mogl has established direct relationships with Visa, MasterCard and American Express providing users with a seamless, coupon-less, loyalty card-less way to redeem the real-time rewards if they just pay with any debit or credit card.

While several other loyalty providers also allow for time of day promotions — some even extending beyond restaurants to include hotels and other categories — CEO Jon Carder claims that MOGL is actually the first loyalty provider to get a live feed of card transactions. He asserts that other loyalty companies gain access to feeds from banks and payment processors that aren’t in real time. Moreover, these feeds only provide day of transaction data – which isn’t useful for executing time-based promotions, he argues.

Others, like FiveStars, get much closer to real time data – if consumers are willing to provide phone numbers or swipe dedicated loyalty cards though a restaurant’s POS. Carder feels this is a disadvantage. Mogl’s seamlessness is a major step up, he says, comparing it to what Uber did for the taxi industry (to us, this is an arguable point).

Regardless, MOGL’s new flexibility with promotions has also enabled it to pivot its business model. The company used to charge a flat 5 percent fee to restaurants across the board. But now – with rewards becoming variable – it has switched to a flat monthly fee of $199. The fee is refundable if restaurants don’t clear $199 in revenue a month from Mogl users These fees are on top of reward/jackpot fees, which the restaurant can now set for itself. The top three customers in a month at each restaurant win a jackpot bonus. The company allows customers to donate their cash-back to local food banks. More than 800,000 meals have been given away.

Mogl’s new model is also winning it some new customers – including some of the hottest restaurants that had shied away from flat, cash-back reward programs in the past because they weren’t able to change the amount based on time of day, says Carder. Even these establishments find themselves needing to fill their seats on weekday lunches.

We’ll have an extensive rundown of loyalty strategies and issues for SMBs at our Leading in Local: SMB Digital Marketing event Sept. 22-24 in New Orleans. Groupon’s Dan Roarty is keynoting, and our session includes executives from First Data, Mercury Payments and SignPost.. Register here.

In a move that shows a deep commitment to the future of classified/vertical advertising, Gannett has announced it will buy out its newspaper partners in Cars.com and take sole possession of the #2 car site (which trails only Cox’s AutoTrader in the online auto marketplace.)

It will pay heartily to do so, paying $1.8 billion for the 73% stake of Cars.com that it doesn’t already own. That sets a value for Cars.com of $2.5 billion — an impressive amount, but still $500 million less than what the highest estimates called for.

An “economic event” around Cars.com and its sister company, Apartments.com, had been considered an absolute certainty by insiders since Summer 2013. This was mandated by the sale of The Washington Post; and the deep debt of other newspaper partners, notably The Tribune Co., and NY Times Co. Apartments.com was sold this April to CoStar Group.

Some have questioned whether Gannett is paying too heavily for Cars.com at 11.5 x earnings. We don’t comment on these issues, but note that the online auto space has gone through a lot of consolidation, boosting the prospects for more car-maker advertising; and is set for a new era that will likely go beyond dealer advertising and leads to include all kinds of transactions; dealer services such as scheduling; and perhaps other revenue producers. The increased dependence on mobile channels will also play a factor in online auto’s growth.

The Cars.com news was accompanied by Gannett’s announcement that it is separating its newspaper properties from its 46 TV stations and its rich collection of digital properties (i.e. Cars.com, Career Builder, Pointroll, BlinQ, ShopLocal, DealChicken, Clipper Magazine, KeyRing). The newspapers will keep the corporate name, while a new name will be found for the TV/Digital group (perhaps an extension of its recently announced G/O Digital brand?)

The spinoff of the newspaper properties will presumably placate Wall Street’s needs to see media companies unencumbered by newspaper and magazines, which are felt to be in an inevitable — if slow — decline. It follows similar moves by Scripps, Belo, Tribune, News Corp. and Time Warner.

The prospect of Gannett holding its newspaper-developed brands such as Cars.com, CareerBuilder and ShopLocal outside of its newspaper company shows how little synergy is seen with today’s newspaper industry (although the grandfathered Cars.com newspaper owners will hold a five year period of exclusivity to sell Cars.com following the sale.)

Should Cars.com have been kept with the newspaper group anyway? To do so would have forced Gannett to saddle the newspapers with debt from the sale.

Zillow is buying Trulia, its chief rival, for $3.5 Billion in stock. The two companies – both nine years old — have a lot of overlap currently. But after the deal closes in 2015, they will seek to develop two differentiated marketplaces for real estate-related information, which includes house sales, rentals, mortgage and related national and local advertising.

As the acquiring company, Zillow would focus on “top of funnel” awareness advertising. Trulia, meanwhile, would focus more on specific agent-related, final purchase (or rental)- related advertising. According to ComScore, Zillow attracted 83 million unique visitors in June, while Trulia attracted 53 million. Roughly half of Trulia’s visitors do not visit Zillow.

The proposed purchase price, roughly $70.53 a share, represents a 25 percent premium over Trulia’s current stock price. Combined revenues from both companies could produce $721 Million in 2015 under present conditions, according to estimates by Benchmark Research. Separately, the companies estimate $100 million a year in cost savings by eliminating redundancy. Under terms of the agreement, Trulia CEO Pete Flint will report to Zillow CEO Spencer Rascoff.

In our view, the primary goal of the acquisition isn’t to build the one-two punch of differentiated real estate sites, or even to maximize cost savings from eliminating overlap. Mostly, it takes Trulia out as a rival company, and per GeekWire, it also ends apparent merger talks between Trulia and Move.com, the #3 Real Estate site that controls the NAR’s Realtor.com site. (It also isn’t the first time Trulia has considered selling itself. Google apparently was interested in buying the site in 2009 when it was pursuing a major listings effort).

Over the next several years,the effort to differentiate the two sites make more sense than to collapse them into one brand. Such a strategy would be reminiscent of what AutoTrader.com has accomplished with KBB.com; The Weather Co. has accomplished with Weather Underground; and what Match.com has accomplished with the purchase of several dating verticals.

Winning national advertising dollars is especially viewed as a key growth area. Zillow has budgeted $45 million in marketing dollars this year to accelerate that effort. Zillow, perhaps best known for its controversial Z-Estimates, sees a unique advertising market among speculative home browsers, targeting everything from landscapers to auto companies. Trulia, meanwhile, has been less controversial than Zillow in the Realtor community and might be a better brand for Realtors to work with.

Will there be anti-trust issues? Both Zillow and Trulia tend to draw from Realtors and brokerages that are digitally minded in their advertising. Zillow head Rascoff, however, suggests that the market is nascent and represents less than 3 percent of the $12 Billion market in real estate advertising.

We don’t know about that. The reality is that the two companies actually tie up a great deal of the linkages between real estate advertising and distributors, such as the search engines, local media companies and others. But ultimately, it probably falls short of real anti- trust concern.

Priceline is sort of like eBay – a company known for its origins in auctions, but more recently focusing on distinct, “buy it now” niches. It has recently fleshed out its core travel brand by moving up the value chain to travel reservations via its acquisition of Kayak. It has also gotten into the “sharing economy” by adding AirBnB-like private listings to its Booking.com brand, which is an international powerhouse.

Today, Priceline added restaurant reservations and search to its stable via the $2.6 Billion purchase of industry leader OpenTable, which works with 31,000 restaurants – mostly high end white table cloth restaurants willing to pay a hefty premium for reservations management and leads to undecided consumers. Open Table is an international leader with strong customer bases in the U.S., U.K.,, Germany, Japan and Mexico.

For Priceline, the most attractive parts of the deal are probably OpenTable’s 15 million, high end, travel-oriented customers; the company’s verified, high quality restaurant reviews; OpenTable’s strong mobile orientation; and its extensive affiliate network with 600+ local and vertical sites, which receive commissions for sending traffic to OpenTable (and accounting for 5-10 percent of OpenTable’s business.) These networks might be extended to include other Priceline properties.

There is probably some disconnect with OpenTable’s high-end customer base and Priceline’s discount set – most OpenTable customers won’t be using Priceline itself. And an effort to extend OpenTable’s feature set with Groupon-like deals proved to be underwhelming (although the company has maintained an extensive and apparently successful “Dining Checques” loyalty program). Many OpenTable customers are also not using the service in travel mode — they are local.

Still, OpenTable customers might use the other services. And the seamless Priceline app experience could also be applied as mobile becomes a paramount factor for all travel services.

A larger question we’d have is the core of OpenTable’s value proposition for restaurants: the reservations management system, which is based on dedicated customer premise equipment (known as The Electronic Reservations Book.) The average ERB using restaurant pays $249 for the service (plus $1.00 per seated diner using the OpenTable system.) But in the age of tablet-based POS and reservations services using WiFI, OpenTable’s proprietary system would seem threatened.

So far, it has held its own against such tablet-oriented companies as UrbanSpoon’s Rez and Groupon‘s Breadcrumb – OpenTable’s base of customers is too strong to quickly turn off. OpenTable itself is preparing for a transition. Yet, it has been developing a Cloud Based program that charge a $2.49 per diner charge.

Structurally, we also ask ourselves whether OpenTable is in a distinct “high end restaurant reservations silo,” where it now sits; or whether it is really part of a developing “food silo” that is based on search and discovery, would also include reviews; restaurant and fastfood delivery (i.e. GrubHub), grocery delivery (Amazon Fresh, Google) and reviews (Yelp.) Priceline might be positioning itself to be in the right of the middle of these conjoining elements. (then again….the new silo might ultimately be oriented more around delivery).